the dti

The Department of Trade and Industry (the dti) promotes structural transformation creating a dynamic industrial and globally competitive economy. It broadens participation in the economy to strengthen economic development and continually aims to respond effectively to the needs of South Africa’s economic citizens. MORE>>

The IDC

The Industrial Development Corporation (IDC) is the national development finance institution promoting economic growth and industrial development. The organisation’s primary objectives are to contribute to the creation of balanced, sustainable economic growth in South Africa and the rest of Africa. MORE>>

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Opportunities abound even in challenging times


Manufacturing is a key sector of the South African economy. Over and above its direct contribution to overall economic activity, the sector has strong linkages with the rest of the economy. It is an indispensable supplier of intermediate products and final consumption goods, as well as an important source of demand for primary products, both of a mineral and agricultural nature, and for a wide variety of services.

Importantly, it employs approximately 1.75 million people and sustains a large number of indirect jobs. Furthermore, manufactured goods accounted for 55% of the national export basket in 2014, generating much needed foreign exchange earnings.

However, the manufacturing sector’s relative contribution to the South African economy has declined since the 1990s, contrasting sharply with other developing regions such as the East Asia and Pacific region, where the share of manufacturing in overall gross domestic product is more than double that of South Africa’s. In 2014, manufacturing accounted for 13.3% of South Africa’s GDP.

Manufacturing contribution to GDP

manufacturing-to-gdp

The decreasing share of manufacturing in South Africa’s GDP should not, however, be interpreted as contracting manufacturing output per se, but rather as real growth in manufacturing output falling short of the services sectors’ impressive performance. Nevertheless, it is imperative that the downward trend in the contribution of manufacturing to overall economic value-add be arrested and preferably reversed.

The performance of the local manufacturing sector has been hindered in recent years by weak demand conditions in global markets, which not only affected the export performance of externally-oriented manufacturing enterprises, but also by increased competition from imported products in domestic markets.

Manufacturing volume of production 2013/2014

volume-of-production

A weaker currency should, under normal circumstances, lead to an improved export performance as the competitiveness of locally manufactured products improves. However, with the Eurozone continuing to experience a very weak economic recovery, its demand for South African manufactured goods has remained muted and local consumption has also come under pressure.

The economy experienced a relatively weak growth trend over the past three years, with real GDP growth decelerating to 1.5% in 2014 – the worst performance since the 2008/09 recession. A deteriorating consumer environment, infrastructure related constraints, industrial action in key sectors, rising operating costs, low levels of business confidence, especially among manufacturers, and weak fixed investment activity by the private sector were other factors.

Fixed investment by sector

sector-investment

With manufacturing enterprises largely experiencing serious operational and competitiveness challenges, cost-cutting measures to maintain a degree of financial viability have often resulted in employment losses. By the end of 2014, the manufacturing sector employed almost 360 000 fewer workers than at the start of 2008.

Despite the adverse employment trend, the manufacturing sector still accounted for 11.4% of overall employment in South Africa. Moreover, due to its strong linkages with numerous local suppliers of goods and services, the ultimate employment numbers associated with manufacturing activities is significantly larger than the direct number of jobs provided by the sector itself. It is important for local manufacturers to expand their global reach beyond traditional export markets.

Employment trends

employment-trends

Diversification is key.

South Africa’s trade with the rest of the world remains highly concentrated, with the products of the 10 largest sectors accounting for almost 70% of all exports. In terms of export destinations, the 10 largest foreign markets at the individual country level claimed more than 50% of South Africa’s total exports in 2014.

Furthermore, the top 10 manufacturing sectors accounted for 63% of overall manufacturing exports in 2014 dominated by motor vehicles and basic iron and steel, which accounted for almost 30% of the total. Manufactured exports are mainly destined for the rest of the African continent, the European Union and the United States.

Manufactured products represented approximately 89% of South Africa’s merchandise exports to other African countries in 2014. These were also quite diversified, with the leading export categories including non-electrical machinery and equipment; motor vehicles, parts and accessories; processed food; basic iron and steel products; chemicals and chemical products; fabricated metal products; petroleum and petroleum products; and electrical machinery and equipment.

South Africa’s exports to the rest of the African continent totalled approximately R290 billion in 2014, representing 30% of the overall merchandise export basket.

Some 244 000 direct jobs in the South African economy were associated with exports to other African countries last year. Once multiplier effects are taken into consideration, the total number of employment opportunities associated with overall merchandise exports to the rest of Africa rises to about 894 000. The manufacturing sector alone is estimated to have accounted for almost 170 000 of the direct employment opportunities.

South African exports

exports

The South African government has repeatedly emphasised that a dynamic and expanding manufacturing sector accelerates the pace of economic growth, contributes to the structural transformation of the economy and its modernisation. The sector’s vital role is duly recognised in the National Development Plan and the New Growth Path and manufacturing enterprises are benefitting from strategic support under the National Industrial Policy Framework and its three-year rolling Industrial Policy Action Plans.

An increasingly competitive manufacturing sector will be able to retain and grow market share in local and foreign markets and penetrate new ones with a more diverse product mix. It will also be able to pursue import replacement opportunities more effectively, including through the introduction of new industrial activities, technologies and products.

Opportunities for the expansion and diversification of industrial production capacity will continue to emerge out of local demand requirements. These will be driven by household spending, by business requirements for intermediary inputs and final goods, or by public sector expenditure going forward.

The sector’s integration with economic agents in other sub-Saharan African countries is also crucial. The region is not only expected to remain one of the fastest growing in the world economy for many years to come, presenting enormous market potential, but it will also be a prime source of raw materials or intermediate inputs. The development of strong domestic and regional value chains will further enhance the ability of South African manufacturers to compete internationally.